Understanding the Primary Components of the Annual Financial Report of the United States Government
Gao ID: GAO-09-946SP September 25, 2009This guide supersedes GAO-05-958SP, "Understanding the Primary Components of the Annual Financial Report of the United States Government." The U.S. government is the largest, most diverse, most complex, and arguably the most important entity on earth today. Useful, timely, and reliable financial and performance information is needed to make sound decisions on the current results and future direction of vital federal programs and policies. The Department of the Treasury (Treasury), in coordination with the Office of Management and Budget, annually prepares the Financial Report of the United States Government, hereafter referred to as the Consolidated Financial Report (CFR). The CFR is a general-purpose report of accountability intended internally for members of Congress, federal executives and federal program managers, and externally primarily for citizens and citizen intermediaries who are interested in and have a reasonable understanding of federal government activities and are willing to study the information with reasonable diligence. Citizen intermediaries include members of the news media, analysts, and others who analyze and interpret, for the general public, the more complex and detailed information in the CFR. The goal of the CFR, and the subject of this guide, is to make available to every American a comprehensive overview of the federal government's finances. As described in the CFR, significant issues regarding the reliability and presentation of the federal government's financial information still need to be addressed. For example, several long-standing material weaknesses and other scope limitations have prevented GAO from being able to express any opinion on the federal government's consolidated financial statements, except for the Statement of Social Insurance. GAO expressed an unqualified opinion on the fiscal year 2008 and 2007 Statements of Social Insurance. Also, additional transparency is needed in connection with intragovernmental debt and the large and growing intergenerational burden associated with the federal government's projected growth in costs and debt. At the same time, in its current form, the CFR offers certain valuable insights into the overall financial operations, condition, and financial outlook of the federal government. GAO prepared this guide to the CFR to help those who seek to gain a baseline understanding of the significant information provided in the primary components that make up the CFR, especially the financial statements. This guide explains the purpose of each CFR component and provides illustrative financial information using actual fiscal year 2008 and 2007 data to focus readers on the kinds of significant information found in the various parts of the CFR. Because the illustrative financial information contained in this guide minimizes detail in order to highlight significant line items, it does not show or explain all of the items included in the federal government's actual CFR. This guide is not intended to help people who are interested in understanding the components of the financial statements of individual federal agencies as their form or content may vary from that of the CFR. Because this guide uses illustrative examples from the fiscal year 2008 CFR, significant financial transactions related to recent government actions to address the economic crisis that occurred in fiscal year 2009, such as the American Recovery and Reinvestment Act, are not included in this guide.
GAO-09-946SP, Understanding the Primary Components of the Annual Financial Report of the United States Government
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
September 2009:
Understanding the Primary Components of the Annual Financial Report of
the United States Government:
GAO-09-946SP:
Preface:
The U.S. government is the largest, most diverse, most complex, and
arguably the most important entity on earth today. Useful, timely, and
reliable financial and performance information is needed to make sound
decisions on the current results and future direction of vital federal
programs and policies. The Department of the Treasury (Treasury), in
coordination with the Office of Management and Budget, annually
prepares the Financial Report of the United States Government,
hereafter referred to as the Consolidated Financial Report (CFR). The
CFR is a general-purpose report of accountability intended internally
for members of Congress, federal executives and federal program
managers, and externally primarily for citizens and citizen
intermediaries who are interested in and have a reasonable
understanding of federal government activities and are willing to study
the information with reasonable diligence. Citizen intermediaries
include members of the news media, analysts, and others who analyze and
interpret, for the general public, the more complex and detailed
information in the CFR.
The goal of the CFR, and the subject of this guide, is to make
available to every American a comprehensive overview of the federal
government‘s finances. As described in the CFR, significant issues
regarding the reliability and presentation of the federal government‘s
financial information still need to be addressed. For example, several
long-standing material weaknesses and other scope limitations have
prevented GAO from being able to express any opinion on the federal
government‘s consolidated financial statements, except for the
Statement of Social Insurance. GAO expressed an unqualified opinion on
the fiscal year 2008 and 2007 Statements of Social Insurance. Also,
additional transparency is needed in connection with intragovernmental
debt and the large and growing intergenerational burden associated with
the federal government‘s projected growth in costs and debt. At the
same time, in its current form, the CFR offers certain valuable
insights into the overall financial operations, condition, and
financial outlook of the federal government.
GAO prepared this guide to the CFR to help those who seek to gain a
baseline understanding of the significant information provided in the
primary components that make up the CFR, especially the financial
statements. This guide explains the purpose of each CFR component and
provides illustrative financial information using actual fiscal year
2008 and 2007 data to focus readers on the kinds of significant
information found in the various parts of the CFR. Because the
illustrative financial information contained in this guide minimizes
detail in order to highlight significant line items, it does not show
or explain all of the items included in the federal government‘s actual
CFR. This guide is not intended to help people who are interested in
understanding the components of the financial statements of individual
federal agencies as their form or content may vary from that of the
CFR. Because this guide uses illustrative examples from the fiscal year
2008 CFR, significant financial transactions related to recent
government actions to address the economic crisis that occurred in
fiscal year 2009, such as the American Recovery and Reinvestment Act,
are not included in this guide.
GAO is updating this guide, first issued in 2005, to reflect recent
changes to the federal accounting standards and resulting changes to
the CFR. Significant changes to the CFR are as follows:
* The Statement of Social Insurance is now a principal financial
statement that is required to be audited. Prior to fiscal year 2006,
all social insurance related information was included in the
unaudited Stewardship Information section.
* Earmarked funds, representing about 45 percent of the total revenue
for fiscal year 2008, are now reported on the Statement of Operations
and Changes in Net Position, as well as the Balance Sheet. Earmarked
funds are financed by specific revenue that remains available over time
for designated purposes.
* Stewardship land and heritage assets information is now included on
the Balance Sheet and in the Notes to the Financial Statements, and is
no longer disclosed in the Stewardship Information section.
Treasury has also added another section to the CFR, ’The Federal
Government‘s Financial Health: A Citizen‘s Guide to the Financial
Report of the United States Government“ (Citizen Guide), which
highlights key information found in the annual CFR for the general
public.
The annual financial reports of the United States Government are
available through Treasury‘s website at [hyperlink,
http://www.fms.treas.gov/fr/index.html].
This guide was prepared under my direction, and I may be reached at
(202) 512-8815 or engelg@gao.gov.
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
[End of section]
Contents:
The Consolidated Financial Report:
A Citizen‘s Guide:
Management‘s Discussion and Analysis:
Financial Statements:
Some Important Financial Statement Concepts:
Composition of the Financial Statements:
Statement of Net Cost:
Statement of Operations and Changes in Net Position:
Reconciliation of Net Operating Revenue (or Cost) and Unified Budget
Surplus (or Deficit):
Statement of Changes in Cash Balance from Unified Budget and Other
Activities:
Balance Sheet:
Statement of Social Insurance:
Notes to the Financial Statements:
Supplemental Information:
Stewardship Information:
Government Accountability Office Report:
How the Federal Government‘s Accrual-Basis Consolidated Financial
Statements Relate to One Another:
Note: This guide can be found on-line through GAO‘s website at
[hyperlink, http://www.gao.gov/products/GAO-09-946SP]. This guide
supersedes GAO-05-958SP, ’Understanding the Primary Components of the
Annual Financial Report of the United States Government.“
Sources: PhotoDisc (cover images); Fiscal year 2008 CFR,
prepared by the Department of the Treasury (illustrations).
[End of section]
The Consolidated Financial Report:
Similar to a corporation‘s annual report, the Consolidated Financial
Report (CFR) is the federal government‘s general-purpose report of
accountability to the American public on its finances. It is intended
to:
* provide an overall view of the annual financial results of operations
and the financial position of the federal government, including long-
term commitments and obligations;
* demonstrate accountability for the money the federal government
raises through taxes and for spending money according to the laws and
regulations that govern the federal government‘s budgets and financial
operations;
* report on the federal government‘s operating performance, accounting
systems, and internal control; and
* demonstrate the federal government‘s stewardship over its resources.
The consolidated financial statements (CFS) in the CFR, submitted by
the Department of the Treasury in coordination with the Office of
Management and Budget, present consolidated and summarized financial
information from the various federal government agencies and
departments. The federal government is responsible for:
* preparing the annual CFS in conformity with U.S. generally accepted
accounting principles;
* establishing, maintaining, and assessing internal control to provide
reasonable assurance that the control objectives of the Federal
Managers‘ Financial Integrity Act, 31 U.S.C. 3512 (c), (d) are met;
and;
* complying with applicable laws and regulations.
The Federal Accounting Standards Advisory Board (FASAB), after
considering the financial and budgetary information needs of citizens,
congressional oversight groups, executive agencies, and other users,
promulgates the accounting and reporting standards essential for public
accountability over federal dollars.
GAO conducts the audit of the CFS, along with the accompanying notes to
the financial statements; the objective is to provide an opinion on the
fairness of the consolidated financial statements taken as a whole.
The CFR is organized into seven major sections:
1) A Citizen‘s Guide;
2) Management‘s Discussion and Analysis;
3) Financial Statements;
4) Notes to the Financial Statements;
5) Supplemental Information;
6) Stewardship Information;
7) Government Accountability Office Report.
* A Citizen‘s Guide highlights significant information found in the
CFR.
* Management‘s Discussion and Analysis provides management‘s insights
into the information presented in the federal government‘s financial
statements.
* Financial Statements consolidate financial information from federal
entities to provide an overall view of the federal government‘s
financial operations and condition.
* Notes to the Financial Statements provide important disclosures and
details related to information reported on the financial statements.
* Supplemental Information provides additional information to enhance
the understanding of the federal government‘s operations and financial
condition.
* Stewardship Information highlights substantial investments that have
long-term benefits to the public including programs related to
nonfederal physical property, human capital, and research and
development.
* Government Accountability Office Report presents the results of GAO‘s
audit of the financial statements and notes to the financial
statements.
This guide discusses the significant content of each section in the
CFR, with a primary emphasis on the federal government‘s financial
statements.
[End of section]
A Citizen‘s Guide:
The purpose of the Citizen‘s Guide is to provide a high-level overview
of significant information found in the CFR. The fiscal year 2008 guide
includes information on the following:
* Significant increases in the net operating cost and the unified
budget deficit from fiscal year 2007 to fiscal year 2008. The net
operating cost for the government‘s annual operations”the difference
between revenue and net cost”increased from $276 billion for fiscal
year 2007 to just over $1 trillion for fiscal year 2008. Total federal
government revenue remained relatively constant compared to fiscal year
2007. However, the federal government‘s net cost increased by $731
billion, or more than 25 percent, over fiscal year 2007. Approximately
half of this increase was related to net cost increases at the
Department of Veterans Affairs, primarily those related to increases in
estimated actuarial liabilities for veterans‘ benefits. The unified
budget deficit (primarily cash basis) for the year more than doubled,
from $163 billion in fiscal year 2007 to $455 billion in fiscal year
2008, due in part to the weakening economy in fiscal year 2008.
* U.S. government actions to address the housing and credit market
crisis and the economic recession. The Housing and Economic Recovery
Act and the Emergency Economic Stabilization Act of 2008 were enacted
in an effort to stabilize the financial sector and protect the economy.
Actions taken in response to these legislative initiatives have the
potential to significantly increase future borrowing by the government,
and their impact will largely be reflected in the financial statements
for fiscal year 2009 and beyond.
* The unsustainability of the federal government‘s existing fiscal
policies. Under current policy, Medicare and Medicaid spending driven
by escalating growth in health care costs and an aging population,
along with scheduled higher Social Security spending due to an aging
population, will significantly increase overall federal spending. Total
government expenditures are projected to exceed federal revenues each
year, resulting in permanent annual deficits that grow larger and
larger. As the deficits grow, so does the need for more borrowing from
the public. Projections under current policy show government debt levels
reaching unprecedented and unsustainable levels.
[End of section]
Management‘s Discussion and Analysis:
The Management‘s Discussion and Analysis (MD&A) section of the CFR
provides important insights into the information presented in the
federal government‘s financial statements. It presents management‘s
perspective on the financial information and overall operations of the
federal government in more detail than the Citizen‘s Guide.
The MD&A is intended to provide readers with a narrative overview and
analysis of the federal government‘s performance, financial position,
and financial operations. It is also intended to address the federal
government‘s financial statements, systems and controls, compliance
with laws and regulations, and actions taken or planned to address
problems. For example, the fiscal year 2008 MD&A:
* discusses the economic recession of the United States as a backdrop
to the financial condition of the federal government for fiscal year
2008. It includes a summary of some key economic indicators, such as
the ongoing slump in the residential homebuilding sector, record high
energy prices, elevated food prices, increasing job losses, and the
weakening or declining of corporate profits outside the energy sector.
* explains the volatility of the housing and credit markets during the
last half of fiscal year 2008, which sparked unprecedented economic
events. Major problems in the subprime credit market led the way for
significant losses in mortgage backed securities and substantial cash
shortfalls for the investment banks, government sponsored enterprises
involved in the secondary housing financial market, and bank investors.
This precarious environment has resulted in the transformation,
acquisition, and even the demise of several leading and long-
established major financial institutions. Also, the MD&A discusses the
federal government‘s intended actions to provide stability in the
housing and credit markets.
* discusses important fiscal issues and significant conditions that
affect the country‘s future fiscal health. Emphasis is given to the
estimated cost and exposures under current policy to pay benefits of
key social insurance programs such as Social Security and Medicare. It
provides historical data as well as forward looking projections of how
the aging of the population and continually rising health care costs
could lead to further erosion of the federal government‘s fiscal
health.
* graphically depicts important information, such as the federal
government‘s revenues and costs, or ’what came in and what went out,“
over the past several years, and the federal government‘s increasing
liabilities, or ’what we owe,“ by major components.
[End of section]
Financial Statements:
Some Important Financial Statement Concepts:
Before considering the purpose and content of each of the federal
government‘s consolidated financial statements, it is important to
understand certain concepts about the nature of those financial
statements, especially the (1) use of cash and accrual accounting and
(2) treatment of transactions between federal entities.
Cash and Accrual Accounting:
Except for the Statement of Social Insurance, the federal government
generally uses both the accrual basis and cash basis of accounting to
record and report financial information. Accrual accounting, also used
in the private sector, is generally the basis used to prepare the
Statement of Net Cost, Statement of Operations and Changes in Net
Position, and the Balance Sheet. It is intended to provide a complete
picture of the federal government‘s financial operations and financial
position. In contrast, the federal government primarily uses the cash
basis of accounting for its budget, which is the federal government‘s
primary financial planning and control tool. The budget helps establish
national spending priorities and helps ensure that the federal
government spends taxpayers‘ money in accordance with applicable
appropriations laws. Information on the most recent President‘s Budget
can be found on the Office of Management and Budget‘s website at
[hyperlink, http://www.whitehouse.gov/omb/budget]. Differences between
the federal government‘s operating results and its budget results are
shown in the statement called the Reconciliation of Net Operating
Revenue (or Cost) and Unified Budget Surplus (or Deficit). Accordingly,
understanding the basic concepts of the cash basis and accrual basis of
accounting is important to understanding the information included in
the federal government‘s financial statements.
Cash Basis of Accounting:
Because it is similar to keeping a checkbook, the cash basis of
accounting (used to account for and report budget results) is perhaps
the easier of the two bases of accounting to understand. The cash basis
focus is on cash receipts, cash disbursements, and the difference
between the two amounts. With relatively few exceptions, receipts are
recorded when cash is received, and outlays are recorded when cash is
disbursed. The difference between cash receipts and cash outlays at the
end of the fiscal year is reported as the annual budget surplus or
budget deficit. For example, for fiscal year 2008 the federal
government reported a unified budget deficit of about $455 billion
(explained in more detail later in this guide). This deficit was based
on reported cash outlays of about $2,979 billion compared with reported
cash receipts of about $2,524 billion. It is important to note that the
federal government‘s cash receipts used in determining the unified
budget deficit include surplus funds earmarked for the Social Security
trust funds and certain other trust funds.
Accrual Basis of Accounting:
The accrual basis of accounting recognizes revenue when it is earned
and recognizes expenses in the period incurred, without regard to when
cash is received or disbursed. The federal government, which receives
most of its revenue from taxes, nevertheless, recognizes tax revenue
when it is collected, under an accepted modified cash basis of
accounting.
Expenses are recognized during the period in which they are incurred.
Accrual accounting, for example, recognizes that while the employee is
working, the employee earns not only a salary but also health, pension,
and other benefits that will be paid in the future during the employee‘
s retirement. Accordingly, each year, on the basis of actuarial
calculations of benefits earned, the federal government records as an
expense (operating cost) an estimated amount for these earned benefits
and increases the related liability”Federal Employee and Veteran
Benefits Payable”for the amount owed to its employees, both civilian
and military. Thus, the accrual basis of accounting is intended to
provide a complete financial picture, for the CFR reader, of the
federal government‘s annual employee-related costs.
Also under accrual accounting, the federal government reports physical
assets when they are acquired and records related expenses when the
federal government benefits from their use or consumption or when they
are sold. Physical assets consist of inventories of goods held for sale
or for future consumption and long-lived or ’fixed“ assets such as
land, buildings, and equipment. In the case of assets such as buildings
and equipment, the annual cost attributed to their use is recorded as
depreciation expense.
Treatment of Transactions between Federal Entities:
In the normal course of federal government operations, federal agencies
and departments frequently purchase and sell goods and services among
themselves. These types of activities between federal agencies and
departments are called intragovernmental transactions. They also include
amounts the federal government borrows from the Social Security trust
funds. Intragovernmental transactions are recorded in federal agencies‘
and departments‘ accounts and financial statements along with
transactions conducted with nonfederal entities. These
intragovernmental transactions are to be eliminated from the federal
government‘s consolidated accounts and financial statements so that the
totals for the affected accounts, when summarized for all federal
government agencies and departments, are not overstated for the federal
government as a whole.
Composition of the Financial Statements:
The federal government‘s consolidated financial statements include six
statements (pages 31 and 32 of this guide provide discussion and a
simplified overview of how the five accrual-basis financial statements
are related). The first five financial statements below (accrual-basis
financial statements) present 2 years of financial data so that readers
can compare the federal government‘s financial information for the
current and prior years. The sequence in which the financial statements
appear below are the order in which they appear in the CFR.
Statement of Net Cost;
Statement of Operations and Changes in Net Position;
Reconciliation of Net Operating Revenue (or Cost) and Unified Budget
Surplus (or Deficit);
Statement of Changes in Cash Balance from Unified Budget and Other
Activities;
Balance Sheet;
Statement of Social Insurance.
* Statement of Net Cost - The first statement shows the annual costs on
the accrual basis of accounting, to operate the federal government in
total, and by major department and agency.
* Statement of Operations and Changes in Net Position - The second
statement shows the accrual-based results of the federal government‘s
operations”the extent to which the federal government‘s tax revenue
covers its net cost. It also shows how these annual results (called the
net operating revenue or net operating cost) affect the federal
government‘s net financial position as of a given date”the difference
between its assets (what it owns) and its liabilities (what it owes).
* Reconciliation of Net Operating Revenue (or Cost) and Unified Budget
Surplus (or Deficit) - The third statement shows the relationship
between the accrual-based operating results and the cash-based budget
results. It begins with the net operating result (revenue or cost) from
the Statement of Operations and Changes in Net Position and shows the
items that explain the difference between that amount and the federal
government‘s annual cash-based budget surplus or deficit.
* Statement of Changes in Cash Balance from Unified Budget and Other
Activities - The fourth statement shows the relationship between the
cash-based budget surplus or deficit and the change in the balance of
cash and other monetary assets. It begins with the cash-based budget
surplus or deficit and shows the items that explain either how the
federal government used a budget surplus or financed a budget deficit.
* Balance Sheet - The fifth statement shows the nature and amount of
the federal government‘s assets (what it owns) and liabilities (what it
owes) and the difference between the two, called the net position. This
net position amount is the same as the net position amount reported in
the Statement of Operations and Changes in Net Position.
* Statement of Social Insurance - The sixth financial statement shows
how much money in addition to earmarked revenue the federal government
estimates it would need today, under current policy, to cover the
projected long-term commitments of its major social insurance programs,
such as Social Security and Medicare. Beginning in fiscal year 2006,
the Statement of Social Insurance became a basic financial statement,
with the key economic and demographic assumptions disclosed in the
accompanying notes to the CFS, and with other social insurance related
information presented in the Supplemental Information section of the
CFR. Prior to fiscal year 2006, all social insurance related
information was presented as Stewardship Information in the CFR.
The amount of revenue directed to earmarked funds, such as the Social
Security trust funds, has increased dramatically over the past 2
decades and now constitutes a greater proportion of the federal budget.
To improve the transparency of this important source of revenue, FASAB
issued a standard for identifying and reporting earmarked funds.
According to FASAB, an earmarked fund receives specifically identified
revenue and other financing sources that (1) remain available over
time, (2) are required by statute to be used for designated activities,
benefits, or purposes, and (3) must be accounted for separately from
the government‘s general revenues. Beginning in the fiscal year 2006
CFR, earmarked revenue is shown separately on the Statement of
Operations and Changes in Net Position. In addition, the Balance Sheet
shows separately the portion of net position attributable to earmarked
funds. Additional financial information regarding the major earmarked
funds is provided in the notes to the financial statements under the
caption Earmarked Funds. This information is intended to assist users
of financial statements in understanding the federal government‘s
results of operations and related commitments.
Beginning in fiscal year 2009, the CFR will include additional
information on fiduciary activities, such as the Federal Employees‘
Thrift Savings Fund. Fiduciary activities relate to the collection or
receipt and the subsequent management, protection, accounting,
investment, and disposition of cash or other assets in which nonfederal
individuals or entities have an ownership interest that the federal
government must uphold. Fiduciary assets are not assets of the federal
government and therefore, will not be recognized on the Balance Sheet
of the U.S. government.
The following sections discuss each of these six statements in
additional detail and offer insights regarding potential uses and
analytical data available from each.
Statement of Net Cost:
The Statement of Net Cost is intended to show how much it cost to
operate the federal government, by federal agency and department, and
in total. It provides costs on an accrual basis of accounting, which
recognizes expenses when they are incurred, regardless of when cash is
disbursed. Thus, it provides, for the accounting period, cost
information that can be related to the goods produced, services
rendered, and the outcomes of the programs of the federal government‘s
agencies and departments for the same period. Since the actuarial
calculations for social insurance costs are not reported as liabilities
on the Balance Sheet, the corresponding costs also are excluded from
the cost of government operations. An important concept of the
Statement of Net Cost is that the revenue earned by federal agencies
and departments from their operations, such as admissions to national
parks and fees paid for postal services and stamps, is subtracted from
their cost of operations. The net cost is the amount to be financed
from tax revenue and, as needed, borrowing.
Readers can use this statement to find such information as:
* which agencies or departments accounted for most of the federal
government‘s net cost,
* how much the federal government‘s net cost increased or decreased
from the prior fiscal year, and;
* which agency or department experienced the largest increase and which
experienced the largest decrease in net cost from the previous year.
Over half of the federal government‘s fiscal year 2008 net costs came
from three agencies or departments: the Department of Defense, the
Department of Health and Human Services, and the Social Security
Administration. Together, these three accounted for about $2.1
trillion, or 58 percent of the approximately $3.6 trillion of reported
total net costs. The reported 2008 total net cost was substantially
more than in 2007 by, $731.2 billion or about 25 percent. The largest
cost increase, by agency or department, was $371 billion for the
Department of Veterans Affairs, mostly related to increases in
veterans-benefit actuarial liabilities for compensation benefits to
veterans who are disabled by military service–related causes. The
Department of Energy reported the largest cost decrease of $31.6
billion, primarily due to changes in environmental cleanup and disposal
liability estimates. It is important to note that agencies or
departments that use actuarial projections in determining their costs
and related liabilities may experience large fluctuations in annual
costs due to program benefit changes and changes to actuarial
assumptions.
Table: Illustrative Net Cost Information (In billions of dollars):
Department of Defense:
Year ended Sept. 30, 2008, Gross Cost: $767.6;
Year ended Sept. 30, 2008, Earned Revenue: $26.8;
Year ended Sept. 30, 2008, Net Cost: $740.8;
Year ended Sept. 30, 2007, Gross Cost: $689.6;
Year ended Sept. 30, 2007, Earned Revenue: $25.1;
Year ended Sept. 30, 2007, Net Cost: $664.5.
Department of Health and Human Services:
Year ended Sept. 30, 2008, Gross Cost: $769.1;
Year ended Sept. 30, 2008, Earned Revenue: $56.4;
Year ended Sept. 30, 2008, Net Cost: $712.7;
Year ended Sept. 30, 2007, Gross Cost: $718.6;
Year ended Sept. 30, 2007, Earned Revenue: $51.8;
Year ended Sept. 30, 2007, Net Cost: $666.8.
Social Security Administration:
Year ended Sept. 30, 2008, Gross Cost: $663.9;
Year ended Sept. 30, 2008, Earned Revenue: $0.3;
Year ended Sept. 30, 2008, Net Cost: $663.6;
Year ended Sept. 30, 2007, Gross Cost: $626.4;
Year ended Sept. 30, 2007, Earned Revenue: $0.3;
Year ended Sept. 30, 2007, Net Cost: $626.1.
Department of Veterans Affairs:
Year ended Sept. 30, 2008, Gross Cost: $434.6;
Year ended Sept. 30, 2008, Earned Revenue: $4.2;
Year ended Sept. 30, 2008, Net Cost: $430.4;
Year ended Sept. 30, 2007, Gross Cost: $63.1;
Year ended Sept. 30, 2007, Earned Revenue: $3.7;
Year ended Sept. 30, 2007, Net Cost: $59.4.
Interest on Treasury securities held by the public:
Year ended Sept. 30, 2008, Gross Cost: $241.6;
Year ended Sept. 30, 2008, Earned Revenue: [Empty];
Year ended Sept. 30, 2008, Net Cost: $241.6;
Year ended Sept. 30, 2007, Gross Cost: $238.9;
Year ended Sept. 30, 2007, Earned Revenue: [Empty];
Year ended Sept. 30, 2007, Net Cost: $238.9.
Department of Energy:
Year ended Sept. 30, 2008, Gross Cost: $35.8;
Year ended Sept. 30, 2008, Earned Revenue: $4.2;
Year ended Sept. 30, 2008, Net Cost: $31.6;
Year ended Sept. 30, 2007, Gross Cost: $67.5;
Year ended Sept. 30, 2007, Earned Revenue: $4.3;
Year ended Sept. 30, 2007, Net Cost: $63.2.
All other entities:
Year ended Sept. 30, 2008, Gross Cost: $979.0;
Year ended Sept. 30, 2008, Earned Revenue: $159.0;
Year ended Sept. 30, 2008, Net Cost: $820.0;
Year ended Sept. 30, 2007, Gross Cost: $753.2;
Year ended Sept. 30, 2007, Earned Revenue: $162.6;
Year ended Sept. 30, 2007, Net Cost: $590.6.
Total:
Year ended Sept. 30, 2008, Gross Cost: $3,891.6;
Year ended Sept. 30, 2008, Earned Revenue: $250.9;
Year ended Sept. 30, 2008, Net Cost: $3,640.7;
Year ended Sept. 30, 2007, Gross Cost: $3,157.3;
Year ended Sept. 30, 2007, Earned Revenue: $247.8;
Year ended Sept. 30, 2007, Net Cost: $2,909.5.
Gross Cost is the accrual-based total cost of the federal government‘s
operations for the year. The statement presents gross cost, earned
revenue, and net cost by federal agency and department. Also, it
includes the cost of interest on Treasury securities held by the
public, which includes foreign investors.
Earned Revenue comes from fees charged for goods and services. The fees
charged for postal services such as stamps are a well-known example of
earned revenue. Earned revenue shows how much the federal agencies and
departments earn from their operations to cover their gross costs, as
opposed to relying on taxes and borrowing to cover the costs.
Net Cost is the portion of the gross cost left after subtracting earned
revenue. The federal government funds the net cost of government from
tax revenue and, as needed, by borrowing.
[End of table]
[End of section]
Statement of Operations and Changes in Net Position:
Similar to corporations‘ income statements, the Statement of Operations
and Changes in Net Position shows the annual financial results of
federal operations (tax revenue less net cost) and how these results
affect net position”the difference between its assets and liabilities.
The Statement of Operations and Changes in Net Position shows activity
for earmarked and nonearmarked funds. Earmarked funds are financed by
specific revenue that remain available over time for designated
purposes. For example, the Federal Old-Age and Survivors Insurance and
Federal Disability Insurance programs, collectively referred to as
’Social Security,“ are financed through payroll and self-employment
taxes. These programs provide a basic income supplement to retired
workers; to survivors, in the event of death of a family‘s primary wage
earner; and for protection against the loss of earnings due to a wage
earner‘s disability. Other major earmarked funds include the Medicare
trust funds, Military Retirement Fund, and Civil Service Retirement and
Disability fund. The financial condition and operating results of each
of these major funds can be found in the CFS‘ disclosure note,
Earmarked Funds.
Nonearmarked funds are financed by nonearmarked receipts and proceeds
of general borrowing. These funds finance the remaining federal
government activities, and often are designated to supplement earmarked
funds through appropriations and transfers, called intragovernmental
transfers, on the Statement of Operations and Changes in Net Position.
For example, Congress appropriated $180 billion in fiscal year 2008 to
finance the Federal Supplementary Medical Insurance Trust Fund (Medicare
Parts B and D).
Treasury borrows cash surpluses from certain earmarked funds (e.g., the
Social Security trust funds) to help finance federal government
operations, and it issues to the funds Treasury securities for the
amounts borrowed. As of September 30, 2008, the reported investments in
Treasury securities held by earmarked funds totaled about $4.2
trillion. Treasury pays interest on money borrowed from the earmarked
funds. Both the related interest expense incurred by Treasury and the
revenue earned by the earmarked funds, which totaled about $201 billion
for fiscal year 2008, are shown on this statement and referred to as
’intragovernmental interest.“ Such intragovernmental transactions are
eliminated to avoid overstating the consolidated totals.
An important concept for this statement is the relationship between the
results of operations and the changes in net position on the Balance
Sheet. The annual financial results of federal operations should be
directly reflected in the values of assets and liabilities, which
determine the net financial position. For example, a net operating cost
of $500 billion reduces the net position by $500 billion. However,
unexplained differences between the net operating cost and the changes
in net position have been reported in the Statement of Operations and
Changes in Net Position as ’Unmatched transactions and balances“ as
shown in the Illustrative Information on Operations and Changes in Net
Position on the next page.
Readers can use this statement to find such information as:
* the annual net operating cost or revenue for earmarked funds,
nonearmarked funds, and the consolidated totals,
* how much tax revenue the federal government generated for the
earmarked funds and nonearmarked funds for the fiscal year,
* how much nonearmarked funds were used to supplement earmarked funds,
and,
* whether the financial status of the federal government”its net
position”has improved or deteriorated from the prior year.
For example, the reported fiscal year 2008 consolidated net cost
exceeded revenue by about $1 trillion, with nonearmarked funds
reporting net operating cost of $1,093.5 billion and earmarked funds
reporting a net operating surplus of $84.4 billion. For earmarked funds
and nonearmarked funds, total reported revenues generated were about
$1.2 trillion and $1.7 trillion, respectively. Also, the net cost of
activities financed by the earmarked funds and nonearmarked funds were
about $1.5 trillion and $2.4 trillion, respectively. Nonearmarked funds
provided additional appropriations and transfers of $338 billion to
earmarked funds.
Table: Illustrative Information on Operations and Changes in Net
Position (billions of dollars):
Operations:
Revenue: Individual income tax and tax withholdings;
Year ended Sept. 30, 2008, Nonearmarked funds: $1,210.0;
Year ended Sept. 30, 2008, Earmarked funds: $868.4;
Year ended Sept. 30, 2008, Consolidated totals: $2,078.4.
Revenue: Corporate income and other taxes and miscellaneous revenues;
Year ended Sept. 30, 2008, Nonearmarked funds: $451.7;
Year ended Sept. 30, 2008, Earmarked funds: $131.3;
Year ended Sept. 30, 2008, Consolidated totals: $583.0.
Revenue: Intragovernmental interest;
Year ended Sept. 30, 2008, Nonearmarked funds: [Empty];
Year ended Sept. 30, 2008, Earmarked funds: $201.0;
Year ended Sept. 30, 2008, Consolidated totals: $201.0.
Revenue: Total Revenue;
Year ended Sept. 30, 2008, Nonearmarked funds: $1,661.7;
Year ended Sept. 30, 2008, Earmarked funds: $1,200.7;
Year ended Sept. 30, 2008, Consolidated totals: $2,862.4.
Revenue: Eliminations;
Year ended Sept. 30, 2008, Consolidated totals: ($201.0).
Revenue: Consolidated Revenue;
Year ended Sept. 30, 2008, Consolidated totals: $2,661.4.
Net Cost: Net Cost;
Year ended Sept. 30, 2008, Nonearmarked funds: $2,186.4;
Year ended Sept. 30, 2008, Earmarked funds: $1,454.3;
Year ended Sept. 30, 2008, Consolidated totals: $3,640.7.
Net Cost: Intragovernmental interest;
Year ended Sept. 30, 2008, Nonearmarked funds: $201.0;
Year ended Sept. 30, 2008, Earmarked funds: [Empty];
Year ended Sept. 30, 2008, Consolidated totals: $201.0.
Net Cost: Total net cost;
Year ended Sept. 30, 2008, Nonearmarked funds: $2,387.4;
Year ended Sept. 30, 2008, Earmarked funds: $1,454.3;
Year ended Sept. 30, 2008, Consolidated totals: $3,841.7.
Net Cost: Eliminations;
Year ended Sept. 30, 2008, Consolidated totals: ($201.0).
Net Cost: Consolidated net cost;
Year ended Sept. 30, 2008, Consolidated totals: $3,640.7.
Intragovernmental transfers;
Year ended Sept. 30, 2008, Nonearmarked funds: ($338.0);
Year ended Sept. 30, 2008, Earmarked funds: $338.0;
Year ended Sept. 30, 2008, Consolidated totals: [Empty].
Unmatched transactions and balances;
Year ended Sept. 30, 2008, Nonearmarked funds: ($29.8);
Year ended Sept. 30, 2008, Earmarked funds: [Empty];
Year ended Sept. 30, 2008, Consolidated totals: ($29.8).
Net Operating (Cost) Revenue;
Year ended Sept. 30, 2008, Nonearmarked funds: ($1,093.5);
Year ended Sept. 30, 2008, Earmarked funds: $84.4;
Year ended Sept. 30, 2008, Consolidated totals: ($1,009.1).
Changes in Net Position:
Net Position, Beginning of Period;
Year ended Sept. 30, 2008, Nonearmarked funds: ($9,826.0);
Year ended Sept. 30, 2008, Earmarked funds: $620.2;
Year ended Sept. 30, 2008, Consolidated totals: ($9,205.8).
Adjustments to beginning balances;
Year ended Sept. 30, 2008, Nonearmarked funds: $11.4;
Year ended Sept. 30, 2008, Earmarked funds: [Empty];
Year ended Sept. 30, 2008, Consolidated totals: $11.4.
Net Operating (Cost) Revenue;
Year ended Sept. 30, 2008, Nonearmarked funds: ($1,093.5);
Year ended Sept. 30, 2008, Earmarked funds: $84.4;
Year ended Sept. 30, 2008, Consolidated totals: ($1,009.1).
Net Position, End of Period:
Year ended Sept. 30, 2008, Nonearmarked funds: ($10,908.1);
Year ended Sept. 30, 2008, Earmarked funds: $704.6;
Year ended Sept. 30, 2008, Consolidated totals: ($10,203.5).
Nonearmarked Funds are financed by nonearmarked receipts and proceeds
of general borrowing. These funds finance federal government activities
that are not financed by earmarked funds.
Earmarked Funds are financed by specific revenue that remains available
over time for designated purposes. Major earmarked funds relate to
Social Security and Medicare programs, and military and civil service
retirements and disability benefits.
Intragovernmental Interest is the interest earned by earmarked funds
and the interest paid by nonearmarked funds for money borrowed by the
nonearmarked funds from the earmarked funds.
Consolidated Revenue primarily comes from federal income tax
collections, which includes taxes earmarked for Social Security and
Medicare.
Consolidated Net Cost is the net cost from the Statement of Net Cost.
Intragovernmental Transfers supplement earmarked-fund activities,
generally through appropriations from the Treasury General Fund.
Unmatched Transactions and Balances are the unexplained differences
between the Net Operating Cost and the Changes in Net Position.
Consolidated Net Operating (Cost) Revenue is the financial results of
operations”the difference between the revenue and the net cost of
government operations for the fiscal year (plus or minus) the net
amount of any unmatched transactions and balances.
Net Position is the difference between the assets and liabilities
reported on the Balance Sheet.
[End of table]
[End of section]
Reconciliation of Net Operating Revenue (or Cost) and Unified Budget
Surplus (or Deficit):
This statement is intended to demonstrate the federal government‘s
accountability to the budget by reconciling its net operating cost to
its unified budget results. The term ’unified budget“ refers to the
budget compilation that includes the full range of federal activities,
both ’on-budget“ and ’off-budget“ amounts. By law, Social Security and
the Postal Service‘s activities are the only two material activities
considered off-budget. On-budget programs and costs are those not
excluded from the budget by law. The approximately $454.8 billion
fiscal year 2008 unified budget deficit shown on the statement consists
of about $638.1 billion on-budget deficit and approximately $183.3
billion off-budget surplus. The off-budget surplus for fiscal year 2008
consisted of $185.7 billion in surplus revenue from the Social Security
trust funds offset by a $2.4 billion deficit in the Postal Service.
Readers can use this statement to find such information as:
* major differences between the net operating cost and unified budget
deficit,
* how much of the federal government‘s operating cost was attributable
to the depreciation of its assets, and,
* how much the federal government spent on capitalized fixed assets.
A major difference between the two bases of accounting for fiscal year
2008 is that changes in accrued expenses related to employee and
veteran benefits, which totaled about $549.8 billion, are included in
the net operating cost but not in the budget. In this statement,
accrued benefit expenses are shown as an increase in liabilities for
employee and veteran benefits. Also, the federal government reported
about $54.8 billion for depreciation expense for fiscal year 2008,
which is included in the net operating cost but not in the budget. In
addition, the amount identified on this statement for the purchase of
capitalized fixed assets for fiscal year 2008 totaled about $106.4
billion, consisting of approximately $71.6 billion for the Department
of Defense and about $34.8 billion for all other federal agencies.
Table: Illustrative Reconciliation of Net Operating Cost and Unified
Budget Deficit (In billions of dollars):
Net Operating Cost (Results of Operations):
Year ended Sept. 30, 2008: ($1,009.1);
Year ended Sept. 30, 2007: ($275.5).
Components of Net Operating Cost Not Part of the Budget Deficit:
Increase in liabilities for employee and veteran benefits:
Year ended Sept. 30, 2008: $549.8;
Year ended Sept. 30, 2007: $90.1.
Increase in environmental and disposal liabilities:
Year ended Sept. 30, 2008: $0.8;
Year ended Sept. 30, 2007: $36.8.
Depreciation expense:
Year ended Sept. 30, 2008: $54.8;
Year ended Sept. 30, 2007: $45.3.
Other:
Year ended Sept. 30, 2008: $70.4;
Year ended Sept. 30, 2007: $25.0.
Components of the Budget Deficit Not Part of the Net Operating Cost:
Cash outlays for capitalized fixed assets:
Year ended Sept. 30, 2008: ($106.4);
Year ended Sept. 30, 2007: ($58.8).
Other:
Year ended Sept. 30, 2008: ($15.1);
Year ended Sept. 30, 2007: ($25.7).
The Unified Budget Deficit:
Year ended Sept. 30, 2008: ($454.8):
Year ended Sept. 30, 2007: ($162.8).
The Net Operating Cost comes from the Statement of Operations and
Changes in Net Position. It primarily represents the difference between
the federal government‘s tax revenue and expenses.
Components of Net Operating Cost Not Part of the Budget Deficit are
mostly current-year expenses under accrual accounting that do not
involve current-year cash outlays. Increases in liabilities such as
employee and veteran benefits and depreciation expense are recognized as
current-year operating expenses under accrual accounting, but are not
in the unified budget total.
Components of the Budget Deficit Not Part of Net Operating Cost consist
mostly of current-year cash outlays for transactions that do not
involve current-year expenses, such as outlays to purchase buildings
and equipment that the federal government capitalizes (records on its
Balance Sheet as assets) and depreciates (expenses) as they are used in
operations. The outlays to purchase these assets increase the unified
budget deficit but not the current net operating cost.
The Unified Budget Deficit represents the difference between cash
receipts (primarily from taxes) and cash outlays for the year for all
programs, on- and off-budget.
[End of table]
[End of section]
Statement of Changes in Cash Balance from Unified Budget and Other
Activities:
Since the federal government operates its budget principally on a cash
basis, the primary purpose of the Statement of Changes in Cash Balance
from Unified Budget and Other Activities is to report how the annual
unified budget surplus or deficit relates to the federal government‘s
borrowing (debt held by the public) and changes in the balance of cash
and other monetary assets. It explains why a unified budget surplus or
deficit normally would not result in an equal change in the balance of
cash and other monetary assets.
Readers can use this statement to identify:
* increases in federal borrowing as a result of the federal
government‘s spending more than it collected in taxes,
* decreases in federal borrowing as a result of a budget surplus,
* changes in the balance of cash and other monetary assets, and,
* how much cash the federal government spent to pay interest on debt
held by the public.
For example, for fiscal year 2008, the federal government reported that
it increased its net borrowings from the public by about $762.7 billion
to help finance the approximately $454.8 billion fiscal year 2008
unified budget deficit. It did this by borrowing about $5,615.8 billion
from the public and paying off debts of approximately $4,853.1 billion.
The federal government also reported that it used about $213.3 billion
of its cash to pay interest on debt held by the public.
Table: Illustrative Information on Changes in Cash Balance from Unified
Budget and Other Activities (In billions of dollars):
Unified Budget Deficit:
Year ended Sept. 30, 2008: ($454.8);
Year ended Sept. 30, 2007: ($162.8).
Adjustments for Noncash Outlays Included in the Budget:
Interest accrued by Treasury on debt held by the public:
Year ended Sept. 30, 2008: $209.0;
Year ended Sept. 30, 2007: $189.4.
Subsidy expense:
Year ended Sept. 30, 2008: ($3.0);
Year ended Sept. 30, 2007: ($9.3).
Subtotal:
Year ended Sept. 30, 2008: $206.0;
Year ended Sept. 30, 2007: $180.1.
Items Affecting the Cash Balance Not Included in the Budget:
Net transactions from financing activity:
Borrowings from the public:
Year ended Sept. 30, 2008: $5,615.8;
Year ended Sept. 30, 2007: $4,547.3.
Repayment of debt held by the public:
Year ended Sept. 30, 2008: ($4,853.1);
Year ended Sept. 30, 2007: ($4,340.4).
Other:
Year ended Sept. 30, 2008: [Empty];
Year ended Sept. 30, 2007: ($0.4).
Subtotal:
Year ended Sept. 30, 2008: $762.7;
Year ended Sept. 30, 2007: $206.5.
Net transactions from monetary and other activity:
Interest paid by Treasury on debt held by the public:
Year ended Sept. 30, 2008: ($213.3);
Year ended Sept. 30, 2007: ($186.1).
Other:
Year ended Sept. 30, 2008: ($4.1);
Year ended Sept. 30, 2007: ($7.6).
Subtotal:
Year ended Sept. 30, 2008: ($217.4);
Year ended Sept. 30, 2007: ($193.7).
Increase in Cash and Other Monetary Assets:
Year ended Sept. 30, 2008: $296.5;
Year ended Sept. 30, 2007: $30.1.
Cash and Other Monetary Assets Balance, Beginning of Period:
Year ended Sept. 30, 2008: $128.0;
Year ended Sept. 30, 2007: $97.9.
Cash and Other Monetary Assets Balance, End of Period:
Year ended Sept. 30, 2008: $424.5;
Year ended Sept. 30, 2007: $128.0.
An exception to the primarily cash-based budget is the reporting of
accrued interest on debt held by the public. To calculate the change in
the balance of cash and other monetary assets, interest for the unified
budget results is adjusted to include only the cash outlays.
Specifically, the amount reported for interest accrued by Treasury on
debt held by the public is added to the unified budget results and the
amount reported for interest paid by Treasury on debt held by the
public is subtracted from the unified budget results.
The major financing activities include borrowings from the public and
repayment of debt held by the public. Net borrowings provide operating
cash needed to finance the budget deficit.
[End of table]
[End of section]
Balance Sheet:
The Balance Sheet shows an end-of-year view of the federal government‘s
overall financial position, its assets (what it owns), its liabilities
(what it owes), and the difference between the two (its net position).
It is important to note that the Balance Sheet does not include the
value of the sovereign powers of the federal government to tax,
regulate commerce, and set monetary policy. In addition, the federal
government‘s responsibilities are much broader than the liabilities
reported on the Balance Sheet, including the potential commitments
related to and the impact of social insurance programs, such as Social
Security and Medicare, over the long term. These resources and
responsibilities are described in the Statement of Social Insurance,
Notes to the Financial Statements, and the Supplemental Information
section of the CFR.
Readers can use this statement to find such information as:
* the makeup of the federal government‘s assets and liabilities,
* which liabilities increased the most, and,
* whether the federal government has a positive net position”more
assets than liabilities”or a negative net position”more liabilities
than assets.
For example, the two largest liabilities as of the end of fiscal year
2008 are (1) about $5.8 trillion of debt held by the public, from whom
the federal government borrowed money to pay for past deficits, and (2)
about $5.3 trillion of pension and benefits owed to civilian employees
and military personnel. These two items also account for the largest
increases in liabilities for fiscal year 2008: federal debt held by the
public and accrued interest increased by about $758.5 billion, and
federal employee and veteran benefits payable increased by
approximately $549.8 billion. As of the end of fiscal year 2008, the
federal government‘s negative net position was about $10.2 trillion.
Other Considerations:
Certain federal trust funds, such as the Social Security trust funds,
have been running cash surpluses, which are loaned to the Treasury and
reduce the current need for the federal government to borrow from the
public to finance current operations of the rest of the government. The
transactions related to the use of such surpluses are eliminated from
the federal government‘s Balance Sheet because, in effect, they
represent loans from one part of the government to another. Importantly,
these intragovernmental debt holdings, which are not shown on the
Balance Sheet, constitute future obligations of the Treasury because
the Treasury must provide cash to redeem these securities in order for
the trust funds to pay benefits or other obligations as they come due.
Table: Illustrative Balance Sheet Information (In billions of dollars):
Assets:
Cash and other monetary assets:
As of Sept. 30, 2008: $424.5;
As of Sept. 30, 2007 (Restated): $128.0.
Loans receivable, net:
As of Sept. 30, 2008: $263.4;
As of Sept. 30, 2007 (Restated): $231.9.
Inventories and related property, net:
As of Sept. 30, 2008: $289.6;
As of Sept. 30, 2007 (Restated): $277.1.
Property, plant, and equipment, net:
As of Sept. 30, 2008: $737.7;
As of Sept. 30, 2007 (Restated): $691.1.
Other assets:
As of Sept. 30, 2008: $259.5;
As of Sept. 30, 2007 (Restated): $253.0.
Total assets:
As of Sept. 30, 2008: $1,974.7;
As of Sept. 30, 2007 (Restated): $1,581.1.
Stewardship Land and Heritage Assets:
Liabilities:
Federal debt securities held by the public and accrued interest:
As of Sept. 30, 2008: $5,836.2;
As of Sept. 30, 2007 (Restated): $5,077.7.
Federal employee and veteran benefits payable:
As of Sept. 30, 2008: $5,318.9.
As of Sept. 30, 2007 (Restated): $4,769.1.
Environmental and disposal liabilities:
As of Sept. 30, 2008: $342.8;
As of Sept. 30, 2007 (Restated): $342.0.
Other liabilities:
As of Sept. 30, 2008: $680.3;
As of Sept. 30, 2007 (Restated): $598.1.
Total liabilities:
As of Sept. 30, 2008: $12,178.2;
As of Sept. 30, 2007 (Restated): $10,786.9.
Commitments and Contingencies:
Net Position:
Earmarked funds:
As of Sept. 30, 2008: $704.6;
As of Sept. 30, 2007 (Restated): $620.2.
Nonearmarked funds:
As of Sept. 30, 2008: ($10,908.1);
As of Sept. 30, 2007 (Restated): ($9,826.0).
Total net position:
As of Sept. 30, 2008: ($10,203.5);
As of Sept. 30, 2007 (Restated): ($9,205.8).
Total liabilities and net position:
As of Sept. 30, 2008: $1,974.7;
As of Sept. 30, 2007 (Restated): $1,581.1.
Assets are the operational resources the federal government has
available as of the end of the fiscal year. The largest category”
property, plant, and equipment, net”includes land and buildings and
the federal government‘s military equipment, such as ships, aircraft,
and tanks, after subtracting accumulated depreciation.
Stewardship Land and Heritage Assets, which include national parks and
natural resources, are reported in nonfinancial units in the notes to
the financial statements.
Liabilities are the financial responsibilities of the federal
government as of the end of the fiscal year. In addition to federal
debt securities, liabilities include federal employee and veteran
benefits payable”the amount the federal government estimates that it
owes or will owe its military and civilian employees and veterans under
its life and health insurance and pension plans.
Not all Commitments and Contingencies of the federal government require
recognition as liabilities on the Balance Sheet. Commitments that
require the future use of resources, such as long-term leases, as well
as loss contingencies that are assessed to be at least reasonably
possible, are disclosed in the notes to the financial statements.
Net Position is the difference between the federal government‘s assets
and liabilities.
[End of table]
[End of section]
Statement of Social Insurance:
The Statement of Social Insurance shows how much more money would be
needed, in today‘s dollars, for the federal government‘s social
insurance programs to continue operating over the long term, as they
are structured today. The estimates presented in these statements are
based on actuarial projections of persons who are or will be
participants in these programs. These estimates exclude related trust
fund balances, primarily the special U.S. Treasury securities held by
such trust funds. These securities are guaranteed for principal and
interest by the full faith and credit of the U.S. government and, as of
September 30, 2008, totaled about $2.7 trillion, of which the Social
Security trust funds held about $2.4 trillion. Additional information
regarding Social Security and Medicare programs are included in the
annual reports of the Trustees of the Social Security and Medicare trust
funds; the summary and full annual reports can be found on Social
Security‘s website at [hyperlink,
http://www.socialsecurity.gov/OACT/TR/index.html].
Readers can use this statement to find such information as:
* the total amount of projected additional resources needed today,
under current policy, in addition to future earmarked revenue for the
federal government to fund the major social insurance programs over the
projected period, and,
* how much the projected resource needs have changed from prior years.
For example, in 2008, Social Security‘s projected expenditures of about
$43 trillion exceeded projected revenue of about $36 trillion by
approximately $7 trillion.
Estimated amounts shown as needed over an infinite period, while not
shown on the Statement of Social Insurance, are presented in the
Supplemental Information section of the CFR. The present value of the
resources needed for programs noted above totaled about $102 trillion
based on an infinite time period.
Table: Illustrative Social Insurance Information: Present Value of Long-
Range (75 Years) Actuarial Projections (In billions of dollars):
Federal Old-Age, Survivors and Disability Insurance (Social Security):
Revenue (Contributions and Earmarked Taxes):
As of January 1, 2008: $36,357;
As of January 1, 2007: $34,113;
As of January 1, 2006: $32,107;
As of January 1, 2005 (Unaudited): $29,450;
As of January 1, 2004 (Unaudited): $27,699.
Expenditures for Scheduled Future Benefits:
As of January 1, 2008: ($42,911);
As of January 1, 2007: ($40,876);
As of January 1, 2006: ($38,557);
As of January 1, 2005 (Unaudited): ($35,154);
As of January 1, 2004 (Unaudited): ($32,928).
Present Value of Future Expenditures in Excess of Future Revenue:
As of January 1, 2008: ($6,555);
As of January 1, 2007: ($6,763);
As of January 1, 2006: ($6,449);
As of January 1, 2005 (Unaudited): ($5,704);
As of January 1, 2004 (Unaudited): ($5,229).
Federal Hospital Insurance (Medicare Part A):
Revenue (Contributions and Earmarked Taxes):
As of January 1, 2008: $11,883;
As of January 1, 2007: $11,023;
As of January 1, 2006: $10,644;
As of January 1, 2005 (Unaudited): $9,435;
As of January 1, 2004 (Unaudited): $8,976.
Expenditures for Scheduled Future Benefits:
As of January 1, 2008: ($24,619);
As of January 1, 2007: ($23,315);
As of January 1, 2006: ($21,934);
As of January 1, 2005 (Unaudited): ($18,264);
As of January 1, 2004 (Unaudited): ($17,468).
Present Value of Future Expenditures in Excess of Future Revenue:
As of January 1, 2008: ($12,736);
As of January 1, 2007: ($12,292);
As of January 1, 2006: ($11,290);
As of January 1, 2005 (Unaudited): ($8,829);
As of January 1, 2004 (Unaudited): ($8,492).
Federal Supplementary Medical Insurance (Medicare Part B):
Revenue (Premiums):
As of January 1, 2008: $5,478;
As of January 1, 2007: $4,789;
As of January 1, 2006: $4,481;
As of January 1, 2005 (Unaudited): $4,187;
As of January 1, 2004 (Unaudited): $3,889.
Expenditures for Scheduled Future Benefits:
As of January 1, 2008: ($21,197);
As of January 1, 2007: ($18,221);
As of January 1, 2006: ($17,613);
As of January 1, 2005 (Unaudited): ($16,571);
As of January 1, 2004 (Unaudited): ($15,329).
Present Value of Future Expenditures in Excess of Future Revenue:
As of January 1, 2008: ($15,719);
As of January 1, 2007: ($13,432);
As of January 1, 2006: ($13,131);
As of January 1, 2005 (Unaudited): ($12,384);
As of January 1, 2004 (Unaudited): ($11,440).
Federal Supplementary Medical Insurance (Medicare Part D):
Revenue (Premiums and State Transfers):
As of January 1, 2008: $2,107;
As of January 1, 2007: $2,405;
As of January 1, 2006: $2,366;
As of January 1, 2005 (Unaudited): $2,547;
As of January 1, 2004 (Unaudited): $2,651.
Expenditures for Scheduled Future Benefits:
As of January 1, 2008: ($9,964);
As of January 1, 2007: ($10,766);
As of January 1, 2006: ($10,250);
As of January 1, 2005 (Unaudited): ($11,233);
As of January 1, 2004 (Unaudited): ($10,770).
Present Value of Future Expenditures in Excess of Future Revenue:
As of January 1, 2008: ($7,857);
As of January 1, 2007: ($8,361);
As of January 1, 2006: ($7,884);
As of January 1, 2005 (Unaudited): ($8,686);
As of January 1, 2004 (Unaudited): ($8,119).
Other - Present Value of Future Expenditures in Excess of Future
Revenue:
As of January 1, 2008: ($104);
As of January 1, 2007: ($100);
As of January 1, 2006: ($97);
As of January 1, 2005 (Unaudited): ($86);
As of January 1, 2004 (Unaudited): ($83).
Total:
As of January 1, 2008: ($42,970);
As of January 1, 2007: ($40,948);
As of January 1, 2006: ($38,851);
As of January 1, 2005 (Unaudited): ($35,689);
As of January 1, 2004 (Unaudited): ($33,363).
Social Security provides Federal Old-Age and Survivors Insurance and
Disability Insurance. Both programs are financed by taxes on employees
and employers, including the self-employed, and are administered by the
Social Security Administration.
Federal Hospital Insurance (Medicare Part A) covers inpatient hospital
and related care. It is financed primarily by a payroll tax on
employers and employees, including the self-employed, and a portion of
the income taxes paid on Social Security benefits. Federal Hospital
Insurance is administered by the Department of Health and Human
Services.
Federal Supplementary Medical Insurance, which also is administered by
the Department of Health and Human Services, consists of two parts,
called Medicare Part B and Medicare Part D. Medicare Part B covers
hospital outpatient services, physicians‘ services, and other assorted
products and services. Part D covers the federal government‘s
prescription drug program. Both parts are financed primarily by
transfers from the general fund of the Treasury and premiums from
participants.
[End of table]
[End of section]
Notes to the Financial Statements:
The notes to the financial statements are an important source of
information about the financial operations and condition of the federal
government. As stated on the bottom of each of the statements, notes
are considered an integral part of the financial statements. Moreover,
most of the consolidated financial statements contain references to one
or more notes.
The 25 notes to the federal government‘s fiscal year 2008 consolidated
financial statements provided 73 pages of important and required
disclosures. The notes addressed the following topics:
1. Significant Accounting Policies;
2. Cash and Other Monetary Assets;
3. Accounts and Taxes Receivable;
4. Loans Receivable and Loan Guarantee Liabilities;
5. Inventories and Related Property;
6. Property, Plant and Equipment;
7. Securities and Investments;
8. Financial and Housing Market Stabilization;
9. Other Assets;
10. Accounts Payable;
11. Federal Debt Securities Held by the Public;
12. Federal Employee and Veteran Benefits Payable;
13. Environmental and Disposal Liabilities;
14. Benefits Due and Payable;
15. Insurance Program Liabilities;
16. Other Liabilities;
17. Collections and Refunds of Federal Revenue;
18. Prior Period Adjustments;
19. Contingencies;
20. Commitments;
21. Earmarked Funds;
22. Indian Trust Funds;
23. Social Insurance;
24. Stewardship Land and Heritage Assets;
25. Subsequent Events.
The first note to the federal government‘s consolidated financial
statements summarizes the significant accounting policies used in
accounting for and reporting on the federal government‘s consolidated
financial information. Other notes provide important disclosures and
details about the items on the statements. For example, the Federal
Employee and Veteran Benefits Payable note provides details about the
composition of benefits payable to federal civilian employees and
military personnel and disabled veterans, which exceeded $5.3 trillion
as of September 30, 2008. Because this estimated amount is based on
actuarial calculations, the note also identifies the significant long-
term assumptions used in determining these liabilities and related
expenses. In addition, the note discloses that the Department of
Veterans Affairs (VA) provides medical care to veterans on an ’as
available“ basis, subject to the limits of the annual appropriations.
VA does not report an accrued long-term actuarial liability for this
medical care, but recognizes the medical care expenses in the period the
services are provided. For the time period 2004 through 2008, the note
states that the average medical cost per year was $30 billion. Further,
the note discloses that VA provides pension benefits to certain
veterans and their dependents based on annual eligibility reviews.
Although VA does not recognize a long-term actuarial liability for
these pension benefits, VA discloses the projected amounts of future
payments for pension benefits, $97.3 billion as of September 30, 2008,
and $81.4 billion as of September 30, 2007. Readers can use this
information to learn which benefit programs are primarily responsible
for changes in the federal government‘s liability to its civilian
employees, military personnel, and veterans, and thus, to better
understand factors likely to drive future federal disbursements.
The table below is the summary table from the fiscal year 2008 note for
Federal Employee and Veteran Benefits Payable, which shows how much the
federal government estimates it owes civilian and military employees in
various categories of benefits. The full note also provides additional
tables depicting the details of the changes in the pension and post-
retirement health benefits categories from fiscal year 2007 to fiscal
year 2008 for both civilian and military employees, and discusses the
various categories.
Table: Illustrative Note Information:
Federal Employee and Veteran Benefits Payable as of September 30 (In
billions of dollars):
Pension and accrued benefits:
Civilian, 2008: $1,454.8;
Civilian, 2007: $1,386.3;
Military, 2008: $1,154.1;
Military, 2007: $1,028.8;
Total, 2008: $2,608.9;
Total, 2007: $2,415.1.
Post-retirement health and accrued benefits:
Civilian, 2008: $341.8;
Civilian, 2007: $311.6;
Military, 2008: $820.6;
Military, 2007: $835.9;
Total, 2008: $1,162.4;
Total, 2007: $1,147.5.
Veteran compensation and burial benefits:
Civilian, 2008: N/A;
Civilian, 2007: N/A;
Military, 2008: $1,466.7;
Military, 2007: $1,127.7;
Total, 2008: $1,466.7;
Total, 2007: $1,127.7.
Liabilities for other benefits:
Civilian, 2008: $54.5;
Civilian, 2007: $52.3;
Military, 2008: $26.4;
Military, 2007: $26.5;
Total, 2008: $80.9;
Total, 2007: $78.8.
Total:
Civilian, 2008: $1,851.1;
Civilian, 2007: $1,750.2;
Military, 2008: $3,467.8;
Military, 2007: $3,018.9;
Total, 2008: $5,318.9;
Total, 2007: $4,769.1.
[End of table]
[End of section]
Supplemental Information:
The Supplemental Information section is intended to provide additional
information to enhance the understanding of the federal government‘s
operations or financial condition. The supplemental information is not
required to be audited.
Readers can use this section to understand:
* how Medicare and Social Security Trust Funds are financed, and the
sustainability of Social Security and the Hospital Insurance Fund
(Medicare Part A) under current law. For example, Medicare Part A is
used to pay for inpatient hospital stays, skilled nursing care,
hospice, and certain home health services. This trust fund is financed
primarily through payroll taxes and in 2008 was projected to remain
solvent until 2019. Similarly, the combined Social Security Trust Funds
are financed primarily through payroll taxes and in 2008 were projected
to remain solvent until 2041. Actuarial projections of the solvency of
these trust funds are updated annually.
* the sensitivity of changes in the assumptions used to determine
estimated cashflow projections for these trust funds. For example, the
Social Security Trust Funds used assumptions such as the changes in the
average annual reduction in death rates, fertility rates, and net
immigration to determine the present values of estimated future
expenditures in excess of future revenue.
* the current year‘s net results for Medicare and Social Security Trust
Funds, which is computed as revenue received from payroll and benefit
taxes and insurance premiums less expenditures for health care and
income security benefits.
* the estimated cost of maintenance needed to bring property owned by
the federal government to an acceptable condition, called deferred
maintenance (e.g., for fiscal year 2008, the estimated cost of deferred
maintenance on such property ranged from about $110 billion to
approximately $117 billion).
* the amount of federal taxes paid by individuals grouped by income
level (e.g., individuals with adjusted gross incomes of $200,000 or
more paid about 53 percent of the individual federal income taxes
collected for tax year 2006).
The following table is taken from the Supplemental Information section
of the CFR. It is intended to provide additional information about
individual taxable income and taxes paid. Although the data are from
the 2006 tax year, the information nonetheless helps readers understand
how the federal tax burden is distributed based on adjusted gross
income.
Table: Illustrative Supplemental Information:
Individual Income Tax Liability for Tax Year 2006:
Adjusted gross income (AGI): Under $15,000;
Number of taxable returns (in thousands): 37,614;
AGI (in millions of dollars): $188,624;
Total income tax (in millions of dollars): $3,141;
Average AGI per return (in whole dollars): $5,015;
Average income tax per return (in whole dollars): $84;
Income tax as a percentage of AGI: 1.7%.
Adjusted gross income (AGI): $15,000 to under $30,000;
Number of taxable returns (in thousands): 29,649;
AGI (in millions of dollars): $655,386;
Total income tax (in millions of dollars): $22,562;
Average AGI per return (in whole dollars): $22,105;
Average income tax per return (in whole dollars): $761;
Income tax as a percentage of AGI: 3.4%.
Adjusted gross income (AGI): $30,000 to under $50,000;
Number of taxable returns (in thousands): 24,907;
AGI (in millions of dollars): $973,569;
Total income tax (in millions of dollars): $59,846;
Average AGI per return (in whole dollars): $39,088;
Average income tax per return (in whole dollars): $2,403;
Income tax as a percentage of AGI: 6.1%.
Adjusted gross income (AGI): $50,000 to under $100,000;
Number of taxable returns (in thousands): 30,053;
AGI (in millions of dollars): $2,123,894;
Total income tax (in millions of dollars): $185,019;
Average AGI per return (in whole dollars): $70,672;
Average income tax per return (in whole dollars): $6,156;
Income tax as a percentage of AGI: 8.7%.
Adjusted gross income (AGI): $100,000 to under $200,000;
Number of taxable returns (in thousands): 12,110;
AGI (in millions of dollars): $1,610,028;
Total income tax (in millions of dollars): $210,538;
Average AGI per return (in whole dollars): $132,956;
Average income tax per return (in whole dollars): $17,386;
Income tax as a percentage of AGI: 13.1%.
Adjusted gross income (AGI): $200,000 or more;
Number of taxable returns (in thousands): 4,088;
AGI (in millions of dollars): $2,431,160;
Total income tax (in millions of dollars): $545,226;
Average AGI per return (in whole dollars): $594,740;
Average income tax per return (in whole dollars): $133,380;
Income tax as a percentage of AGI: 22.4%.
Adjusted gross income (AGI): Total;
Number of taxable returns (in thousands): 138,421;
AGI (in millions of dollars): $7,982,661;
Total income tax (in millions of dollars): $1,026,332;
Average AGI per return (in whole dollars): [Empty];
Average income tax per return (in whole dollars): [Empty];
Income tax as a percentage of AGI: [Empty].
[End of table]
[End of section]
Stewardship Information:
The Stewardship Information section of the CFR describes how much the
federal government spent for programs that provide long-term benefits
to the public, or stewardship investments. These programs include
grants for construction and major renovation of state and local
government property, such as bridges and roads, and grants for
education and training. The Stewardship Information section also
describes the expenses the federal government has incurred in its basic
and applied research and in development programs. The Stewardship
Information section is not required to be audited.
Readers can use this section to find such information as:
* how much the federal government spent on nonfederal physical property
such as state and local bridges and roads, and whether such spending
has increased or decreased,
* how much the federal government spent on educating and training the
public and whether such spending has increased or decreased, and,
* how much the federal government spent on research and development,
and whether such spending has increased or decreased.
The next illustrative table on stewardship investments, reports annual
expenditures from fiscal year 2004 through fiscal year 2008. It
includes items that the government considers investments in the future
of the nation, such as public education and training”reported under
investments in human capital, and various categories of research and
development. The amounts reported for fiscal years 2004–2007 are
restated due to agencies‘ continued reviewing, correcting, and updating
these data.
Table: Illustrative Stewardship Information:
Stewardship Investments for the Years Ended September 30 (In billions
of dollars):
Investments in nonfederal physical property:
Fiscal year 2008: $57.8;
Restated fiscal year 2007: $56.2;
Restated fiscal year 2006: $54.4;
Restated fiscal year 2005: $51.9;
Restated fiscal year 2004: $54.8.
Investments in human capital:
Fiscal year 2008: $77.2;
Restated fiscal year 2007: $76.1;
Restated fiscal year 2006: $107.4;
Restated fiscal year 2005: $88.2;
Restated fiscal year 2004: $76.6.
Research and development:
Investments in basic research:
Fiscal year 2008: $27.6;
Restated fiscal year 2007: $26.5;
Restated fiscal year 2006: $25.2;
Restated fiscal year 2005: $25.1;
Restated fiscal year 2004: $23.4.
Investments in applied research:
Fiscal year 2008: $21.4;
Restated fiscal year 2007: $22.2;
Restated fiscal year 2006: $21.7;
Restated fiscal year 2005: $21.2;
Restated fiscal year 2004: $20.0.
Investments in development:
Fiscal year 2008: $79.2;
Restated fiscal year 2007: $66.3;
Restated fiscal year 2006: $52.1;
Restated fiscal year 2005: $42.1;
Restated fiscal year 2004: $37.9.
Total investments:
Fiscal year 2008: $263.2;
Restated fiscal year 2007: $247.3;
Restated fiscal year 2006: $260.8;
Restated fiscal year 2005: $228.5;
Restated fiscal year 2004: $212.7.
[End of table]
[End of section]
Government Accountability Office Report:
GAO‘s report tells readers whether or not, or to what extent, the
information provided in the CFS is reliable. GAO conducts its audit of
the CFS in accordance with U.S. generally accepted government auditing
standards, and obtains and evaluates evidence, with the objective of
providing a formal written conclusion on whether the consolidated
financial statements taken as a whole are presented fairly, in all
material respects, in conformity with U.S. generally accepted
accounting principles. The Citizen‘s Guide, MD&A, Supplemental, and
Stewardship Information sections in the CFR are not required to be
audited.
The auditor may express an unqualified opinion, a qualified opinion, or
an adverse opinion, or disclaim an opinion on the fairness of the
financial statements taken as a whole. In an unqualified opinion, the
auditor states that the information in the financial statements and
accompanying notes is presented fairly, in all material respects, in
conformity with U.S. generally accepted accounting principles. A
qualified opinion discloses exceptions to an unqualified opinion, such
as inadequate disclosures or selected nonconformities with U.S.
generally accepted accounting principles. However, in a qualified
opinion, the exceptions are not considered material enough to affect
the fairness of the statements taken as a whole. Exceptions considered
too serious or pervasive to justify a qualified opinion result in an
adverse opinion, which states that the financial statements taken as a
whole are not presented fairly, in all material respects, in conformity
with U.S. generally accepted accounting principles. The circumstances
related to such exceptions are also disclosed in the auditor‘s report. A
disclaimer of opinion may result when the auditor is unable to obtain
sufficient information upon which to base an opinion. The circumstances
related to a disclaimer are described in the auditor‘s report.
GAO expressed an unqualified opinion on the 2008 and 2007 Statements of
Social Insurance. GAO disclaimed an opinion on the fiscal year 2008 and
2007 Consolidated Financial Statements other than the Statements of
Social Insurance because of the effects of persistent material
weaknesses in the federal government‘s internal control and certain
accounting and reporting practices that limited the scope of work that
could be performed; a major factor in this limitation is the Department
of Defense‘s continued inability to undergo an audit of its financial
statements.
GAO‘s report also includes an opinion on whether the federal government
had effective internal control over financial reporting and over
compliance with laws and regulations. It also reports on any identified
significant matters of noncompliance with selected provisions of
applicable laws and regulations. For fiscal year 2008, GAO reported
that the federal government did not maintain effective internal control
over financial reporting (including safeguarding assets) and compliance
with significant laws and regulations. GAO‘s work to test compliance
with selected provisions of significant laws and regulations in fiscal
year 2008 was limited by material weaknesses and scope limitations.
GAO‘s audit report would not be possible without the commitment and
professionalism of Inspectors General throughout the federal government
who are responsible for annually auditing the financial statements of
individual federal agencies.
[End of section]
How the Federal Government‘s Accrual-Basis Consolidated Financial
Statements Relate to One Another:
The federal government‘s consolidated financial statements consist of
(1) five interrelated statements, referred to as the accrual-basis
consolidated financial statements, and (2) the Statement of Social
Insurance, which does not relate to the other consolidated financial
statements. The chart on the next page provides an overview of the five
accrual-basis consolidated financial statements and how selected
components of those statements are related.
The total operating expense, called Net Cost, presented in the
Statement of Net Cost is used in the Statement of Operations and
Changes in Net Position to determine whether the federal government‘s
financial operations (revenue less expenses) resulted in net operating
cost or net operating revenue for the year.
The operating result from the Statement of Operations and Changes in
Net Position explains the change in the federal government‘s net
position. It is also the beginning balance in the Reconciliation of Net
Operating Revenue (or Cost) and Unified Budget Surplus (or Deficit).
The Net Position from the Statement of Operations and Changes in Net
Position agrees to the Net Position on the Balance Sheet, which is
based on the difference between the federal government‘s reported
assets and liabilities.
The unified budget result is used in the Reconciliation of Net
Operating Revenue (or Cost) and Unified Budget Surplus (or Deficit) and
the Statement of Changes in Cash Balance from Unified Budget and Other
Activities to show how the federal government‘s financial operations and
changes in cash and other monetary assets are connected to the unified
budget results.
The federal government‘s ending cash and other monetary assets balance
from the Statement of Changes in Cash Balance from Unified Budget and
Other Activities is the same as the ’cash and other monetary assets“
line on the Balance Sheet.
Figure: How the Federal Government‘s Accrual-Basis Consolidated
Financial Statements Relate to One Another:
[Refer to PDF for image: illustration]
Statement of Net Cost:
Gross Cost, (-) Earned Revenue (=) Net Cost;
Used to compute net operating cost.
Statement of Operations and Changes in Net Position:
Revenue, (-) Net Cost of Government Operations, (=) Net Operating Cost;
Used as opening balance to show relationship to budget (deficit) or
surplus.
Net Position (beginning), (+) Net Operating Cost (=) Net Position
(ending).
Reconciliation of Net Operating Revenue (or Cost) and Unified Budget
Surplus (or Deficit):
Net Operating Revenue (or Cost) (+/-) Reconciling Transactions (=)
Budget (Deficit) or Surplus;
Used as opening balance to show relationship to cash and other monetary
assets.
Statement of Changes in Cash Balance from Unified Budget and Other
Activities:
Budget (Deficit) or Surplus (+/-) Adjustments for noncash outlays
included in the budget (+/-) Items affecting the cash balance not
included in the budget (=) Increase (or decrease) in cash and other
monetary assets balance;
(+) Plus Cash and other Monetary Assets (beginning) (=) Cash and Other
Monetary Assets (ending);
Agrees to cash and other monetary assets balance included in the
Balance Sheet.
Balance Sheet: Total Assets;
Cash and Other Monetary Assets (-) Total Liabilities (=) Net Position.
Agrees to net position, calculated by adding net operating cost to
beginning net position.
[End of figure]
[End of section]
